Vending Machines – Wacky Tax Wednesday
- Sales and Use Tax
- Jan 27, 2016 | Gail Cole
The first documented vending machine dates from 215 B.C. (you put in a bronze coin and received holy water from a machine at the temples of Alexandria, Egypt). Next came coin-operated pencil vendors, in 1076 A.D. China. Tobacco boxes appeared in British taverns 700 years later, but it wasn't until around 1888 that they were considered a “viable market” in the U.S.
It’s astonishing what can be purchased from a vending machine these days. It seems like you can buy just about anything from a vending machine in Japan, including beer and sake, fish bait, hooks and line, flowers, fresh eggs, gloves, hot meals, lettuce (machine-grown), neck ties, porn, rice, rhinoceros beetles (live), toy cars, umbrellas, undershirts and underwear. You can buy live crabs from machines in China, pizza in Italy, and mashed potatoes in Singapore. Australian vending machines sell French Fries while those in Moscow sell burgers. A machine in one Texas town sells freshly baked pecan pie and a few in Washington State sell beef jerky. At Drexel University in Philadelphia you can rent iPads from a vending machine. But my favorite addition to vending machine merchandise is the short story, available as of this writing only in Grenoble, France.
Here in the United States, vending machines typically disperse food and beverages, hot or cold. (Certain also offer amusement — remember “The Claw” scene in Toy Story 3?) Can vending machine sales be subject to tax? You betcha!
How sales and use tax applies to vending machine transactions varies state by state. Read on for some of my favorites.
Read just about any local rate change notice for the state of Alabama and you’ll notice a distinct rate for “retail selling price of food for human consumption sold through vending machines.”
Food and “food products for human consumption” sold through vending machines are subject to a rate of 3%. This includes coffee, milk, milk products or substitutes.
“All other tangible personal property sold through vending machines is taxable at 4 percent of the retail sales price.” This includes but is not limited to antacids, bottled water, chewing gum, and carbonated beverages like soft drinks.
So bottled water and soft drinks must not be considered “food products for human consumption” in Alabama. Wonder what we're supposed to do with them (Alabama Code 810-6-1-1-.183.02 and the Sales Tax Brochure).
Cold food items and individual hot drinks (a coffee to go) are generally exempt from California sales tax when sold in a store. Also exempt are candy, chips, cookies, fresh fruits and vegetables, fruit and vegetable juices, and granola bars.
When these items are sold from a vending machine, however, they are subject to sales tax. Or rather, they’re “partially taxable. Tax applies to 33 percent of your gross receipts from vending machine sales of cold food products and hot drinks.”
Tax does not apply to the following:
- Bulk sales of candy and other food items sold from a coin-operated vending machine for 25 cents or less
- Sales of purified drinking water dispensed into a customer’s container when the water enters the vending machine through local supply lines.
The full rate of sales tax applies to the following:
- All carbonated beverages
- Hot food products (other then hot beverages)
Other food products, such as the little aliens featured in Toy Story, are generally taxable (California BOE Publication 118).
One could argue that California penalizes vending machine consumers by slapping sales tax (albeit at a reduced rate) on otherwise exempt goods. Not so New York.
Generally, items that are taxable when sold in a food store are taxable when sold from a vending machine. Taxable goods include bottled water, any food heated or kept warm in the vending machine, food arranged on a plate or prepared and ready to eat, and sandwiches. Similarly, items that are exempt in food stores are generally exempt when sold through vending machines (TB-ST-280).
- Hot beverages (coffee, tea, etc.) sold from a vending machine are always exempt
- Certain items that are taxable when sold by food stores are exempt when they are sold from a vending machine for $1.50 or less. These include:
- Candy and confectionery (gum, chocolate, etc.)
- Honey-roasted nuts and candy- or chocolate-coated nuts
- Popcorn and pretzels
- Fruit drinks containing less than 70% natural juice, lemonade, pop, soda, soft drinks, and sports drinks
The vending machines of future will recognize our faces and refuse us our soda, or burgers, or ice cream. Maybe they'll alert parents when kids try to buy cigarettes or alcohol. "The possibilities ... are endless." And as the offerings get wackier, so will the sales tax, guaranteed.